Ferguson Enterprises Inc DE
For the period ended Dec 5, 2024. Filed Oct 15, 2024.
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Dec 5, 2024 · Filed Oct 15, 2024
Contents
Long-Term Equity-Based Incentive Program
We believe that providing a significant portion of our Executive Officers’ total compensation package in long-term equity-based compensation aligns the incentives of our Executive Officers with the interests of our shareholders and with our long-term corporate success. Additionally, we believe that equity-based compensation awards enable us to attract, motivate, retain and adequately compensate executive talent.
Our Executive Officers were eligible in fiscal 2024 to participate in the following share plans maintained by the Company:
| • | the Omnibus Plan; |
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| • | The Ferguson Group Long-Term Incentive Plan 2019 (“LTIP”); |
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| • | The Ferguson Group Performance Ordinary Share Plan 2019 (“POSP”); |
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| • | The Ferguson Group Ordinary Share Plan 2019 (“OSP”); and |
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| • | The Ferguson Group Employee Share Purchase Plan 2021 (“ESPP”) (collectively, the “Company Employee Share Plans”). |
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A summary of each of these plans and the awards provided thereunder (the “long-term incentive” or “LTI”) is provided below in “—General Information on Share Plans.” Following the approval by Ferguson plc shareholders of the Omnibus Plan at the 2023 annual general meeting held on November 28, 2023, Ferguson no longer grants awards under the LTIP, POSP or OSP (the “Legacy Share Plans”); however, our Executive Officers, including our NEOs, received awards on October 12, 2023 under the Legacy Share Plans and continue to hold outstanding awards under the Legacy Share Plans.
Our Legacy Share Plans are generally aligned with U.K. market practice, while the Omnibus Plan and ESPP are generally aligned with U.S. market practice. Specific information on fiscal 2024 grants issued under our LTI plans is detailed in this section, including the following:
| • | fiscal 2024 award mix; |
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| • | fiscal 2024 target award opportunities; |
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| • | fiscal 2024 LTIP and POSP awards performance metrics and weighting; |
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| • | fiscal 2024 OSP awards; |
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| • | fiscal 2024 awards under the Omnibus Plan (restricted stock units (“RSUs”) and performance stock units (“PSUs”)); and |
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| • | shares earned with respect to awards granted during fiscal 2021 under the LTIP, OSP and POSP that vested during fiscal 2024. |
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Fiscal 2024 Award Mix
The Compensation Committee established the following mix of LTI awards for our NEOs for fiscal 2024. This mix may change in future fiscal years as we continue to evolve the business and execute on our strategic initiatives.
| Performance-Based · Time-Based | |||||
|---|---|---|---|---|---|
| PSU | LTIP | POSP | RSU | OSP | |
| Kevin Murphy | 12% | 58% | — | 30% | — |
| Bill Brundage | — | 70% | — | 30% | — |
| Ian Graham | — | — | 70% | — | 30% |
| Sammie Long | — | — | 70% | — | 30% |
| Bill Thees | — | — | 70% | — | 30% |
In addition, all Executive Officers are eligible to participate in the ESPP on a voluntary basis.
Performance-based awards were granted to the CEO under the LTIP and Omnibus Plan and to the CFO under the LTIP. Service-based awards were granted to the CEO and CFO under the Omnibus Plan. The change in fiscal 2024 to grant service-based awards in addition to performance-based awards to the CEO and CFO was to align their award mix with the other Executive Officers and U.S. market practice. Our CEO received PSUs under the Omnibus Plan for performance-based awards that could not be granted under the LTIP, as the maximum total market value of common stock over which an LTIP award may be granted to a participant may not exceed 500% of the participant’s base salary. All other NEOs were granted performance-based awards under the POSP and service-based awards under the OSP. Performance metrics are discussed in more detail in the sections below.
| 2024 PROXY STATEMENT FERGUSON ENTERPRISES INC. | 49 |
Fiscal 2024 Target Award Opportunities
For fiscal 2024, the changes in the table below were made to target award opportunities to better align with U.S. benchmarking and market practices for these roles. Based on a review of individual performance, the competitive market for talent, and overall value to the organization, the Compensation Committee approved the following changes needed to bring the pay for our named executive officers up to the target market position and align with peer practices to begin to close the existing pay gap in comparison with the 50th percentile of the Peer Group data. See the section above entitled “—Compensation Peer Group and Benchmarking” for additional details on benchmarking to our Peer Group.
| NEO | Fiscal 2024 Change |
|---|---|
| CEO | Increased target LTI (as a % of base salary) from 250% to 430% |
| CFO | Increased target LTI (as a % of base salary) from 160% to 300% |
| All Other NEOs | Increased target LTI (as a % of base salary) from 160% to 180% |
The total LTI target opportunities for our NEOs are shown below:
| Percent (%) of Base Salary | |||||
|---|---|---|---|---|---|
| Name | Target LTI (% of Base Salary) | Target LTI | Threshold | Target | Maximum |
| Kevin Murphy | 430% | $5,349,505 | 280% | 430% | 731% |
| Bill Brundage | 300% | $2,226,018 | 195% | 300% | 510% |
| Ian Graham | 180% | $1,130,969 | 54% | 180% | 306% |
| Sammie Long | 180% | $1,128,746 | 54% | 180% | 306% |
| Bill Thees | 180% | $1,157,456 | 54% | 180% | 306% |
| 50 | 2024 PROXY STATEMENT FERGUSON ENTERPRISES INC. |
Fiscal 2024 LTIP and PSU Awards Performance Metrics and Weightings
For fiscal 2024, we reviewed the performance metrics for our LTIP awards provided to the CEO and CFO and the PSU award to our CEO and determined that relative total shareholder return (“TSR”), adjusted earnings per share (“EPS”) growth (diluted) and return on capital employed (“ROCE”) continued to be appropriate performance metrics, as they closely match the shareholder value creation experience.
The metrics used for these LTIP and PSU awards and their weightings for fiscal 2024 are shown below. The LTIP and PSU awards vest on October 12, 2026, contingent on achievement of performance conditions and, except under certain circumstances described below in “—General Information on Share Plans,” service conditions. Actual goals for each metric will be disclosed when the performance period is completed.
| Metric | Weighting | Definition | Rationale |
|---|---|---|---|
| TSR Relative to S&P 500 Industrials | 33.3% | TSR Relative to S&P 500 Industrial Constituents as of August 1, 2023. | Relative TSR is a commonly used U.S. LTI measure. Relative calibration can mitigate impact of broader stock market impact and/or sector volatility and it provides an objective measure of shareholder value creation, including that created by M&A. |
| Adjusted EPS Growth (diluted) | 33.3% | Adjusted U.S. GAAP EPS – Growth over three-year performance period using the adjusted EPS growth (diluted) for the year ended July 31, 2023, as the starting point and July 31, 2026, as the end point. Adjusted EPS – diluted is defined as adjusted net income divided by the weighted average diluted shares outstanding. Adjusted net income is defined as income from continuing operations before amortization of acquired intangible assets (net of tax), discrete tax items and other items that are non-recurring (net of tax), as further described in the section titled “Non-GAAP Reconciliations and Supplementary Information.” | Commonly used U.S. LTI measure, which is simple and transparent and has a strong line of sight. Investor orientated metric, closely aligned with shareholder interests. |
| ROCE | 33.3% | Adjusted earnings before interest and taxes (Adjusted EBIT) divided by average capital employed. Adjusted EBIT is defined as operating profit excluding certain non-recurring (non-GAAP adjustments), as further described in the section titled “Non-GAAP Reconciliations and Supplementary Information,” and including the impact of acquisition related intangible amortization. Average capital employed is defined as the sum of average net debt and average shareholders’ equity and excludes average assets held for sale. | Commonly used and well understood externally U.S. LTI measure, encourages strong capital discipline. |
Below are the target LTIP shares and PSUs awarded to our NEOs in fiscal 2024:
| Name | LTIP Shares Awarded | PSUs Awarded |
|---|---|---|
| Kevin Murphy | 18,798 | 3,834 |
| Bill Brundage | 9,417 | — |
| 2024 PROXY STATEMENT FERGUSON ENTERPRISES INC. | 51 |
Fiscal 2024 POSP Awards Performance Metrics and Weightings
For fiscal 2024, the Compensation Committee confirmed the use of adjusted operating profit growth as the appropriate performance metric for the POSP awards, as it aligns with shareholder interests.
The performance metric for the fiscal 2024 POSP awards is shown below. POSP awards vest on the third anniversary of the date of grant (October 12, 2026) contingent on achievement of performance conditions and, except under certain circumstances described below in “—General Information on Share Plans,” service conditions. Actual goals will be disclosed when the performance period is completed.
| Metric | Weighting | Definition | Rationale |
|---|---|---|---|
| Adjusted Operating Profit Growth | 100.0% | Three-year spot adjusted operating profit growth, using adjusted operating profit for the year ended July 31, 2023, as the starting point, and July 31, 2026, as the end point. Adjusted operating profit is operating profit before acquisition related intangible amortization and certain other non-GAAP adjustments, as further described in the section titled “Non-GAAP Reconciliations and Supplementary Information.” | Adjusted operating profit is an important measure of business performance as it rewards revenue growth, gross margin improvement and appropriate cost control, and demonstrates the profitability of our core operations. Using adjusted operating profit growth provides a simple, transparent and easily understood performance condition and provides a clear line of sight compared to TSR and EPS. |
Below are the target POSP shares awarded to our NEOs in fiscal 2024:
| Name | POSP Shares Awarded |
|---|---|
| Ian Graham | 4,784 |
| Sammie Long | 4,775 |
| Bill Thees | 4,897 |
Fiscal 2024 RSU awards under the Omnibus Plan
Fiscal 2024 RSU awards granted under the Omnibus Plan are time-based and will vest on October 12, 2026, subject to continued service except under certain circumstances described below in “—General Information on Share Plans.”
Below are the RSUs awarded to our NEOs in fiscal 2024:
| Name | RSUs Awarded |
|---|---|
| Kevin Murphy | 9,699 |
| Bill Brundage | 4,036 |
| 52 | 2024 PROXY STATEMENT FERGUSON ENTERPRISES INC. |
Fiscal 2024 OSP Awards
Fiscal 2024 OSP awards are time-based and vest contingent on a three-year service period except under certain circumstances described below in “—General Information on Share Plans.” The maximum total market value of common stock over which an award may be granted to a participant may not exceed 100% of the participant’s salary (subject to the discretion of the Compensation Committee to determine otherwise).
Below are the OSP shares awarded to our NEOs in fiscal 2024:
| Name | OSP Shares Awarded |
|---|---|
| Ian Graham | 2,050 |
| Sammie Long | 2,046 |
| Bill Thees | 2,098 |
Shares Earned with Respect to Fiscal 2021 LTIP Awards
The fiscal 2021 LTIP awards previously granted to certain of our Executive Officers were eligible to vest following a three-year performance period that commenced on August 1, 2020 (the first day of fiscal 2021) and ended on July 31, 2023 (the last day of fiscal 2023). The performance metrics for the fiscal 2021 LTIP awards were as follows:
| Metric | Weighting | Definition | Rationale |
|---|---|---|---|
| TSR Relative to the FTSE 100 | 33.3% | TSR Relative to FTSE 100 constituents as of the beginning of the performance period. | Relative TSR is a commonly used LTI measure. Relative calibration can mitigate impact of broader stock market impact and/or sector volatility, it provides an objective measure of shareholder value creation, including that created by M&A. |
| Adjusted EPS | 33.3% | Total margin of adjusted EPS growth (diluted) over U.S. inflation after three years. | Commonly used LTI measure, which is simple and transparent and has a strong line of sight. Investor orientated metric, closely aligned with shareholder interests. |
| Cumulative Cash Flow from Operating Activities | 33.3% | Cash flow from operating activities is generated before interest and tax, excluding the effect of the following items to the extent already included in cash generated from operations: cash flows from exceptional items; cash flows arising from special contributions to pension plans made under a deficit recovery plan; and cash flows from non-ongoing and discontinued businesses. | Encourages long-term generation of cash to fund investment and returns to shareholders. |
| 2024 PROXY STATEMENT FERGUSON ENTERPRISES INC. | 53 |
The following table details the threshold, target and maximum goals, as well as the actual results, for the performance conditions relating to the fiscal 2021 LTIP awards. The fiscal 2021 LTIP awards vested on October 16, 2023 for Messrs. Murphy and Graham and Ms. Long and on December 7, 2023 for Mr. Brundage, in each case, at maximum performance level.
| • | Relative TSR achievement — Ferguson was ranked 8th against the FTSE 100 comparator group equating to maximum vesting of this element of the award. |
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| • | Adjusted EPS performance of $9.84, which equates to 95.4% growth (maximum set at 48.0% - U.S. Consumer Price Index (“CPI”) was 18.0%). |
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| • | Three-year cumulative cash flow from operating activities was $7,390 million, $2,190 million in excess of maximum ($5,200 million). |
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| Performance Metric | LTIPWeighting | Threshold | Between Threshold andMaximum | Maximum | Actual |
|---|---|---|---|---|---|
| Percent of Maximum | 25% | 25%-100% | 100% | 100% | |
| Relative Total Shareholder Return(1) | 33.3% | Median | Between Median andUpper Quartile | Upper Quartile | 8th out of 100 Companies |
| Adjusted EPS(1) | 33.3% | U.S. CPI + 3% | Between U.S. CPI + 3% and U.S. CPI + 48% | U.S. CPI + 48% | U.S. GAAP EPS diluted of $9.84 (95.4% growth) |
| Cumulative Cash Flow from Operating Activities(1) | 33.3% | $4,610 million | Between $4,610 million & $5,200 million | $5,200 million | $7,390 million |
(1) Straight line interpolation between threshold and maximum.
Mr. Murphy, Mr. Brundage, Ms. Long and Mr. Graham received awards under the fiscal 2021 LTIP. The number of shares vested for fiscal 2021 LTIP are shown in the table below.
| Name | LTIP Shares Vested |
|---|---|
| Kevin Murphy | 41,138(1) |
| Bill Brundage | 15,618(2) |
| Ian Graham | 1,360 |
| Sammie Long | 1,370 |
(1) Includes 3,238 shares of dividend equivalents that vested when the underlying LTIP award vested.
(2) Includes 1,289 shares of dividend equivalents that vested when the underlying LTIP award vested.
Shares Earned with Respect to Fiscal 2021 POSP Awards
The fiscal 2021 POSP awards previously granted to certain of our NEOs were eligible to vest following a three-year performance period that commenced on August 1, 2020 (the first day of fiscal 2021) and ended on July 31, 2023 (the last day of fiscal 2023). The performance metrics for the fiscal 2021 POSP awards were as follows:
| Metric | Weighting | Definition | Rationale |
|---|---|---|---|
| Adjusted Operating Profit Growth | 100% | Three-year spot adjusted operating profit growth, using adjusted operating profit for the year ended July 31, 2020, as the starting point, and for the year ended July 31, 2023, as the end point. Adjusted operating profit is operating profit before acquisition related intangible amortization and certain other non-GAAP adjustments, as further described in the section titled “Non-GAAP Reconciliations and Supplementary Information.” | Adjusted operating profit is an important measure of business performance as it rewards revenue growth, gross margin improvement and appropriate cost control, and demonstrates the profitability of our core operations. Using adjusted operating profit growth provides a simple, transparent and easily understood performance condition and provides a clear line of sight compared to TSR and EPS. |
| 54 | 2024 PROXY STATEMENT FERGUSON ENTERPRISES INC. |
The fiscal 2021 POSP awards vested on October 16, 2023 at maximum performance level with the adjusted operating profit growth exceeding maximum performance level as shown in the table below, which details the threshold, target and maximum goals, as well as the actual results, for the fiscal 2021 POSP awards.
| Performance Metric(1) | Weighting | Threshold | Between Thresholdand Maximum | Maximum | Actual |
|---|---|---|---|---|---|
| Percent of Maximum | 25% | 25%-100% | 100% | ||
| Adjusted Operating Profit Growth | 100% | 0.1% | Between 0.01% and25.0% | 25.0% | 83.8% |
(1) Straight line interpolation between threshold and maximum.
The number of shares vested for fiscal 2021 POSP are shown in the table below.
| Name | POSP Shares Vested |
|---|---|
| Ian Graham | 8,763 |
| Sammie Long | 8,825 |
| Bill Thees | 7,966 |
Shares Earned with Respect to Fiscal 2021 OSP Awards
The fiscal 2021 OSP awards vested on October 16, 2023. The number of shares vested for fiscal 2021 OSP are shown in the table below.
| Name | OSP Shares Vested |
|---|---|
| Ian Graham | 1,877 |
| Sammie Long | 1,891 |
| Bill Thees | 1,707 |
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